COLGATE-PALMOLIVE COMPANY

The Precision Toothbrush

Marketing Fundamentals
10.12.10
Alex Hoshi
Kim Siah Tan
Leidy Suarez
IMBA, N5
Group B
 Colgate-Palmolive (CP) is lacking a product line within the Super-Premium segment
of the U.S. toothbrush market. Colgate Precision, a new product in CP’s pipeline is ready to
be launched in the market, but the incorrect positioning of this line threatens to cannibalize
the Colgate Plus and Classic lines. A decision on how to minimize this threat and maximize
Precision’s full potential must be made.
The ‘Super-Premium’ segment is fundamental to Colgate-Palmolive’s strategy in the
U.S. toothbrush market.

As a $2.9 billion market growing at a 6.1% annual rate, the U.S. Oral Care market
represents a huge stake for CP’s general interests in core consumer products. Toothbrushes
represent 15.5% of this market; therefore the decision on how to position the new Colgate
Precision line is fundamental to the company’s market standing some years from now.

The toothbrush market is currently divided into the following three segments: Super-
Premium, Professional, and Value (see Exhibit 1). As of today, CP competes in the Value
segment with its Colgate Classic product line and in the Professional segment with its
Colgate Plus product line. CP does not compete in the Super-Premium segment. The
introduction of a line of toothbrushes in the Super-Premium segment is of immense
importance for CP’s competiveness in the toothbrush market. Not only does this segment
account for 46% of dollar sales, but also is one of the main drivers of the rapid growth that
the overall toothbrush market is experiencing.

In the past, Oral-B has been the only competitor exploiting the opportunities that this
segment offers. This is changing as competitors realize the potential and scramble to launch
new products to compete for a share of this promising new segment (see Exhibit 2). As of
today, CP enjoys the overall toothbrush market leader position with 23.3% volume share, but
the activity in the Super-Premium segment threatens the status quo. The decision on how to
position the Colgate Precision product line will be fundamental to the overall balance of
power in the toothbrush and U.S. Oral Care market.

Cannibalization of Colgate Plus and Classic lines is too costly for Colgate-Palmolive to
consider.

In our analysis, to pinpoint the most adequate positioning strategy, we considered the
following two alternatives, each presenting its own advantages and disadvantages. The first
alternative is not to launch Colgate Precision in any of the markets. The only advantage of
not doing so is the elimination of all risks associated with the possible cannibalization of the
other Colgate product lines, especially the Plus. On the other hand, the disadvantages are
much more clear. The failure to release Precision would threaten CP’s competitive edge,
especially as the Super-Premium segment continues to grow and other competitors capitalize
on it.

The second alternative is to release Colgate Precision in the mainstream market today.
This option is attractive due to the potential high net profits driven by large volume sales.
However, cannibalization of the existing Colgate Plus and Classic lines is most likely and
even under the most conservative cannibalization estimates the figures are unattractive (see
Exhibit 3). Additionally, manufacturing capacity limits may result in supply shortages, a
situation less than ideal in a highly competitive market.

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Two-phased approach maximizes Colgate Precision’s contribution to Colgate-
Palmolive’s positioning strategy.

Our recommendation for CP is to launch the Colgate Precision toothbrush in a two-

phased approach. During the first two years, Precision should target the Therapeutic Brusher
niche market, accounting for 46% of adults. Following the initial phase, the product line
should be repositioned in the mainstream market, but still within the Super-Premium
segment.

The introduction of Colgate Precision as a niche product has several advantages. First,
consumer behavior studies have shown an existing demand. More specifically, there is an
untapped increasing population, driven by the Baby Boom Generation, who place high
importance on gum health as opposed to cavity protection. Our brush is 35% more efficient
than all other brushes and promises high value in this niche. Furthermore, this niche market is
also willing to pay a premium for products addressing their needs. Precision is in an ideal
position to target this very attractive market.

This two-phased approach will also minimize the risk of cannibalization between
Colgate’s different product lines. As of today, Colgate Plus is one of the leading brushes in
the Professional segment and should be treated as a rising star (see Exhibit 4). Launching the
Colgate Precision line in the mainstream market threatens this. We believe that in two years
time, the Plus line will be closer to its declining stage and the repositioning of Precision in the
mainstream market will not be as detrimental as if it were to be launched today. This strategy
will also enable the company to achieve a more balanced product mix. By diversifying its
product line, the risk of only competing in the Professional and Value segments is eliminated.
Additionally, the presence in the Super-Premium segment will enhance Colgate’s overall
image as a high-quality brand, which can be leveraged throughout all oral care products,
including toothpaste.

Our recommended positioning strategy does have some limitations that are worth
highlighting. First, launching Precision in a niche market means targeting a much narrower
market when compared to the mainstream option. Second, repositioning Precision in the
mainstream market will require a substantial investment when the time comes. Third,
competitors are aggressively entering the Super-Premium segment, waiting two years to go
mainstream may not be ideal. Finally, going from a niche product to the mainstream market
might have a negative impact on Precision and Colgate’s brand image in general.

Nonetheless, under Colgate-Palmolive’s current circumstances we believe that

Colgate Precision’s positioning in the niche market in the short-term and the repositioning to
the mainstream market in the longer-term is the best course of action considering the
company’s overall situation.

Up to 22.5% volume growth for Colgate Precision in the first four years.

Under our proposed strategy, we believe that during the initial niche market two-year
phase, we can increase overall toothbrush volume shares by up to 5%. During the second
mainstream phase, this figure will increase by up to 22.5%. In order to accomplish this, we
have set out the following implementation plan.

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 Distribution Channels: During the initial phase we recommend to distribute
Precision as shown below. Distribution would then be expanded during the second
mainstream phase to include Mass-Merchandisers and Club Stores.

 44.3% of capacity will be allotted to Food Stores

 17.1% of capacity will be allotted to Drug Stores
 23.1% of capacity will be allotted to Dental Professionals
 15.5% of capacity will be allotted to Promotional Purposes

The margins offered to retailers during the initial phase will average 43%, which is in
line with the offerings from other competitors (see Exhibit 5). During the second-phase
expansion into the mainstream market, the list price will decrease by 12.9%, decreasing the
average margin to retailers to 41%. Despite the 2% decrease, our product will still be
attractive to retailers due to the increase in volume sales Precision will achieve by targeting a
wider market. These competitive margins along with CP’s position as the top toothbrush
maker and overall reputation in the US Oral Care market will allow CP to negotiate the
necessary volume and shelf space from retailers.

As for shelf space in retail stores, during the initial-phase, Precision shall be
strategically placed between Colgate Plus and Oral-B. Since we recommend to stress the
Precision brand to minimize cannibalization, being close to Colgate Plus will help build on
the Colgate brand equity that CP strives for. On the other hand, being next to Oral-B will
allow Precision to target its strongest competitor customers, Oral-B users. Once Precision is
repositioned in the mainstream market during the second-phase, it should be moved away
from Colgate Plus to minimize any potential cannibalization.

Furthermore, both Retailers and Dental Professionals are to be advised on the

exclusivity of the distribution, namely the importance of targeting consumers who are
concerned about gum disease. All distribution channels should be secured by April 1993,
before the planned launch date.

Advertising & Promotions: The main value Precision offers is the effective 35%
more plaque removal than other brands. During the initial phase, the team should target
Therapeutic Brushers, users who are more likely to value Precision and pay a higher
premium. All marketing communication efforts should focus on communicating Precision’s
higher performance.

During the second-phase, the target market should be expanded to include Cosmetic
Brushers. To target this market, we propose hiring an advertising agency to develop a
message with broad consumer appeal that highlights the importance of reduced gum disease
and how Precision can help achieve this. Additionally, CP should leverage their other oral
care products by bundling Precision toothbrushes with them and offering coupon rebates or
vouchers. To fund all these marketing efforts, a total of $11.2 million per year should be set
aside to fund the initial niche phase. The budget for promoting the product will sequentially
be increased during the second phase.

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 Exhibit 1: Toothbrush Market Segmentation

Segment Market Share Market Size

Super-Premium 35.00% $158,550,000
Professional 41.00% $185,730,000
Value 24.00% $108,720,000
Total $453,000,000
Source:
HBS case 9-593-064 Page 3, Product Segments.

Exhibit 2: New Product Launches in the Super-Premium Segment

Line Brand Launch Date

Reach Advance Design Johnson & Johnson 1991
Indicator Oral-B July 1991
Crest Complete Proctor & Gamble September 1992
Aqua-Fresh Flex Smithkline Beecham August 1991

Source: HBS case 9-593-064 Page 3, Table A.

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 Exhibit 3: Profit and Lost Pro-Forma for Niche and Mainstream Market

Niche market Mainstream Market

Year 1 Year 2 Year 1 Year 2

(mil) (mil) (mil) (mil)

Net sales 18.63 32.77 53.74 84.19

revenue

Total 20.05 23.35 59.94 62.39

Expenses

Expected (1.42) 9.42 (6.19) 21.80

net
income

Sceneri 35% 12.66 20.84

o1 cannibalization
of Colgate plus

Net Income (18.86) 0.96

after 35%
cannibalization

Sceneri 60% 21.71 35.72

o2 cannibalization
of Colgate plus

Net Income (27.90) (13.92)

after 60%
cannibalization

Source: HBS case 9-593-064 Page 11, Table E

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 Exhibit 4: Colgate Product Line BCG Matrix & Principal Toothbrush Brands, Market
Share and Growth

BCG MATRIX
Star Question Mark
G High
R (Colgate Plus) (Colgate Precision)
O Cash Cow Dogs
W
T Low (Colgate Classic)
H
High Low
MARKET SHARE

1991 Market Shares ($)

Segment
Product Market Value Market Rate of Market
Line Brand Share Segment (Mil) Share Growth Share
Classic Colgate 4.90% Value $22 20.42% Low High
Pepsodent Lever 6.60% Value $30 27.50% Low High
Private
Label Various 5.90% Value $27 24.58% Low High
Reach
Advance Johnson & Super-
Design Johnson 0.90% Premium $4 2.57% High Low
Super-
Indicator Oral-B 1.30% Premium $6 3.71% High Low
Super-
Regular Oral-B 29.40% Premium $133 84.00% High High
Crest Proctor & Super-
Complete Gamble 0.00% Premium $0 0.00% High Low
Aqua-Fresh Smithkline Super-
Flex Beecham 1.10% Premium $5 3.14% High Low
Plus Colgate 18.50% Professional $84 45.12% High High
Johnson &
Reach Johnson 20.00% Professional $91 48.78% High High
Johnson &
Prevent Johnson 1.10% Professional $5 2.68% High Low
Butler Sunstar 2.40% Professional $11 5.85% High Low

Source: HBS case 9-593-064 Page 14, Exhibit 6

Notes: Total market is growing annually, Sunstar's Butler brush is in the Professional
segment and Private Label brands are all in the Value category.

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 Exhibit 5: Percentage Margin Made by Retailers (Food Channel)

Average
Selling Price
Manufactuer Net (Food Percentage
Super Premium Price ($) Channel) ($) Margin (%)

Oral-B
Indicator 1.92 2.65 38.0

Oral-B Regular 1.78 2.51 41.0

Crest Complete 1.67 2.4 43.7

Reach
Advanced 1.66 2.38 43.4

Aquafresh Flex 1.61 2.32 44.1

Source: HBS case 9-593-064 Page 15

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